Minimising the Budget Deficit: Pakistan

Since the main reason for government to borrow on interest- basis is the existence of budget deficit, the natural starting point for any reform should be the steps needed to minimise this deficit. In this process all avenues must be explored to enhance the amount of tax and non-tax revenues within the limits of Shari‘ah. At the same time steps are needed to be taken to reduce the government expenditures. Reducing the size of the government through privatisation and disinvestment of public sector enterprises could be steps in the right direction.

However, no matter how prudent we try to become in managing our budget it is a fact that for a developing country like Pakistan the need to generate resources from nongovernmental sources will always be there. This means that we have to develop tools which can be used to attract private capital for financing government transactions. However, not all transactions of the government have to depend on private capital. In most eases these transactions take place within the government. Therefore, apparently, there should not be any problem in eliminating interest from those transactions without causing any serious dislocation in the optimum use of resources. We examine some of these eases in detail.

Dr Faiz Muhammad

Source: Elimination of Riba, Khurshid Ahmad, Khalid Rahman and Zahed A. Valie. Republished with permission.